What happened

Shares of The Lovesac Company (NASDAQ:LOVE) are soaring today after the company reported results for the third quarter of fiscal 2021 that even outpaced management's high hopes. This little furniture company has a strong direct-to-consumer business, benefiting from a shift to e-commerce in 2020 due to the COVID-19 pandemic. The third-quarter gains were impressive, and the stock is responding accordingly, up 14% as of 10:40 a.m. EST on Wednesday.

So what

Lovesac reported third-quarter net income of $2.5 million compared to a loss of $6.7 million in the same quarter last year. Moreover, it reported $6 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This is significant because management had guided for an adjusted EBITDA loss of $10 million to $11 million.

A red rocket ship prepares to fly over a rising bar chart.

Image source: Getty Images.

In the third quarter, Lovesac's revenue soared to $74.7 million, up 43.5% year over year. For the fiscal year, revenue is up 35%, showing the acceleration in the third quarter. E-commerce sales are driving the sales gains. Through the first three quarters of fiscal 2021, internet sales are up an impressive 247% from the comparable period of fiscal 2020. 

Now what

Keep in mind that Lovesac is a small-cap stock trading at just two times trailing sales. That appears to be a reasonable valuation given its robust top-line growth. But this company still has a lot of work to do. It's opening new warehouses and improving its infrastructure to support the higher sales it's enjoying. These expenses are a drag on earnings now, but could start to be mitigated next year.

Another thing for shareholders to watch is Lovesac's sales. People have been inclined to upgrade furniture right now as they spend more time at home. But will Lovesac retain this surge in business once the world returns to normal? 

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